Tag Archives: free market

It’s the Market, Stupid: Negative Economic Impacts of Raising the Minimum Wage

Before beginning to write this article, I was of the opinion that minimum wage should at least be adjusted for the cost of inflation, but I had put little additional thought into the matter. Raising the minimum wage is certainly a popular idea with Americans today. Indeed, Americans overwhelmingly support an increase in the minimum wage. Sadly, however, we can not rely on the good judgment of Americans at large to determine what is a good idea (we can’t even count on them to stick to their guns….war in Iraq, anyone?).

The idea of a minimum wage was originally applied in Australia and New Zealand. The U.S. Federal minimum wage was established in 1938 at $0.25/hr and covered less than half of all jobs. The current minimum wage is $5.15 and covers more than 75% of all jobs.

I’d like to discuss some of the implications of a minimum wage hike and some of the claims that have been made about its effects. But before I delve into the details of the wage hike, I think it’s important for a brief reminder of market economic theory 101.

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Is Wal-Mart Really to Blame?

I’d like to respond to some of Howard’s and Steve’s comments to my previous article, so I’ll take them in turn. Unfortunately, I’m so darn long-winded that it’s too big for a simple comment post, so its taken the form of an article:

Costco’s competition with Walmart

Howard speaks of how Costco effectively competes with Walmart effectively with unionized labor and higher wages. This may indeed be true. However, the fact is Costco does not directly compete with Walmart Stores. Rather, Costco is a more direct competitor of Sams Club, another Walmart brand. Walmart Stores are really the bread and butter of Walmart, and having said this, there is no other organization that competes effectively with Walmart on a worldwide scale, hence Walmart’s iconic status. This being the case, it might even be plausible to say that Sam’s Club could pay higher wages and unionize and still be competitive. One possible reason for avoiding this scenario is the collateral effect it would have on Walmart Stores.

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